Europe’s Challenges Impact Adidas Results

Europe's Challenges Impact Adidas Results
Herbert Hainer

Troubles in Europe took a toll on Adidas AG in the second quarter, and analysts disagree on how the company can maintain its momentum for the back half of the year.

“It was a pretty tough comparison because they were going up against not only the Euro championships but also the Olympics from a year ago,” said Robert W. Baird & Co. analyst Mitch Kummetz. “When you look at the business by region, it was really Western Europe that was the most difficult market, and those were the ones that were the most positively impacted [last year].”

Still, Kummetz said he is optimistic that momentum will pick up in the second half, based on the company’s positive signs in running.

“They’ve got a lot of momentum with the Boost and Springblade technologies, and the running business was good in the quarter as well,” he said. “We see the business building momentum going into next year’s World Cup.”

Revenues for the Herzogenaurach, Germany-based company fell 4 percent, to 3.38 billion euros, or $4.39 billion in the second quarter. The company also adjusted its full-year sales outlook to grow at a low- to mid-single-digit rate on a currency-neutral basis.

President of Adidas North America Patrik Nilsson said he is banking on innovation to carry the brand for the back half of the year. “Our focus on innovation in the running category paid off in the second quarter as we successfully established the new Energy Boost shoe among running specialty retailers and runners alike,” he said. “Just last week, we introduced the Adidas Springblade here in the U.S. We are excited about the strong initial sales, which have been particularly good in the mall and at our own retail.”

For the six months ended June 30, Adidas reported a 5.5 percent increase in net income, to 480 million euros, or $624 million. Earnings per share also rose 5.5 percent, to a new record of 2.29 euros, or $3.05.

During last week’s conference call, CEO Herbert Hainer pointed to emerging markets as a bright spot for the company moving forward. “While the growth rates have also slowed in many of these economies, conditions for our group have remained very strong ,” Hainer said. “In fact, we even saw some modest acceleration in several of these markets in the second quarter, with Latin America at the top of the list.”